The new foreign exchange policy, yesterday, received a $20 million foreign investment boost as the Central Bank of Nigeria (CBN) and Citibank Nigeria Limited executed the first Naira-Settled Over the Counter (OTC) Foreign Exchange Futures.
Meanwhile, the CBN, yesterday, assured Bureau de Change (BDC) operators that it was working out modalities for resumption of dollar sales to the subsector.
Announcing the Naira-Settled OTC transaction on its website, yesterday, the Financial Market Dealers Quote (FMDQ) said, “First Naira-Settled OTC FX Futures Trades Executed between CBN and Citibank Nig. Ltd. on FMDQ”.
Speaking on the condition of anonymity, a source with knowledge of the transaction, told newsmen that the value of the transaction was $20 million. Vanguard investigations revealed that the $20 million was a foreign investment inflow into the country.
“What the bank did was to leverage on the opportunity provided by the Naira-Settled OTC Futures to facilitate inflow of $20 million into the country. It is boost for dollar supply into the market,” the source said.
The Naira Settled OTC Futures is one of the critical features of the flexible exchange rate regime announced by the CBN on Tuesday June 14th, 2016.
It basically means future purchase of foreign exchange at an agreed exchange rate, with any difference between agreed exchange rate and the prevailing exchange rate on the agreed date, settled in naira.
It was designed as a means of managing foreign exchange risks and reduces demand pressure for immediate purchase of foreign exchange. Among other things, the Naira Settled OTC Futures: Provides protection against exchange rate fluctuation in investment portfolio; It allows the holder to fix prices for import and export purposes; It allows an investor to take a view as to whether the exchange rate will strengthen or weaken and take advantage of price movements that suit their position.
“It is a good way of encouraging foreign investment into the country”, said a senior banker, who spoke on condition of anonymity.
“With the Naira-Settled OTC Futures, foreign investors can bring in money and use the Naira-Settled OTC futures to guarantee the exchange rate at which they will exit the country. It will help to stabilise the system, if it is well managed and implemented,” he said.
